Danske Research Team
Danske Bank A/S
Market Movers
In the US, focus is on CPI inflation. While PCE core inflation (the Fed’s target measure) is subdued significantly below the 2% target, CPI core inflation was 2.0% y/y in November. We estimate that CPI core inflation increased to 2.1% y/y in December.
In the UK, the labour market report for November 2015 is due. Wage growth as measured by the annual growth rate in average weekly earnings excluding bonuses (3M average) has been weak in the recent reports and the coming report should not be any different. We estimate wage growth declined from 2.0% in October to 1.8% in November. We expect the unemployment rate (3M average) to be unchanged at 5.2%.
The Bank of Canada’s (BoC) rate decision might also attract some attention today. Following the latest oil price rout, markets are now pricing in more than a 50/50 chance of the BoC rate cut. We acknowledge that it is a close call, but we think the BoC will keep rates unchanged today as the weakening of the CAD should do a lot of the rebalancing work. One possibility is that the BoC could re-introduce a form of forward guidance as governor Poloz's predecessor, Carney, pursued with some success in order to anchor rate expectations.
Selected Market News
US equity markets failed to sustain the rebound seen in the European session yesterday, and Asian markets are back in the red this morning as uncertainty about Chinese and global growth outlook and the continued fall in the oil price knocks down investors’ risk appetite.
This morning, markets in Hong Kong are taking the lead and the Hong Kong dollar (HKD) fell to the weakest level since the Lehmann collapse in 2007 at 7.82 versus USD while 12M USD/HKD FX forwards trade at 7.8850and thus above the upper bar of the range at 7.85 guaranteed by the Hong Kong Monetary Authority (HKMA) under the existing exchange rate system. The sell-off in HKD is mainly driven by the weak sentiment toward Chinese assets, which remain a source of capital outflows and probably also some speculation that the fixed exchange regime versus USD will not last.
The International Monetary Fund (IMF) yesterday cut its world growth outlook from 3.6% to 3.4 % in 2016 and from 3.8% to 3.6% in 2017. Overall, the IMF sees global growth risks tilted to the downside with a sharper-than-expected slowdown in China or further appreciation of the dollar and tighter global financing conditions as the main sources of risk.
On a similar less positive note, the International Energy Agency (IEA) yesterday in its monthly Oil Market Report, concluded that warm winter and weaker growth in emerging market economies, in particular in China, are the main factors behind the recent overproduction and the slide in the oil price. Moreover, Chinese oil demand declined in Q4 and demand growth is set to slow further in 2016, according to the IEA, suggesting that the oil price is likely to remain under pressure as long as uncertainty regarding the outlook for global growth is high.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD remains firmer ahead of RBA interest rate decision
The Australian Dollar continued its winning streak for the fifth consecutive session on Tuesday, driven by a hawkish sentiment surrounding the Reserve Bank of Australia. This positive outlook reinforces the strength of the Aussie Dollar, offering support to the AUD/USD pair.
USD/JPY extends recovery above 154.00, focus on Fedspeak
The USD/JPY pair trades on a stronger note around 154.10 on Tuesday during the Asian trading hours. The recovery of the pair is supported by the modest rebound of US Dollar to 105.10 after bouncing off three-week lows.
Gold price extends its upside as markets react to downbeat jobs data
Gold price extends its recovery on Tuesday. The uptick of the yellow metal is bolstered by the weaker US dollar after recent US Nonfarm Payrolls (NFP) data boosted bets that the Federal Reserve would cut interest rates later this year.
Bitcoin miner Marathon Digital stock gains ground after listing by S&P Global
Following Bitcoin miner Marathon Digital's inclusion as an upcoming member of the S&P SmallCap 600, the company's stock received an 18% boost, accompanied by an $800 million rise in market cap.
RBA expected to leave key interest rate on hold as inflation lingers
Interest rate in Australia will likely stay unchanged at 4.35%. Reserve Bank of Australia Governor Michele Bullock to keep her options open. Australian Dollar bullish case to be supported by a hawkish RBA.